Commodities. Oil and Gold Daily - January 23, 2018

> Oil rises on strong economic growth outlook; US inventories data eyed. Early in the day yesterday, the front-month Brent contract was under pressure and slid $0.5/bbl, coming up just short of breaking below $68.4/bbl. Later it managed to pare those losses, rising sharply to eventually settle at $69.03/bbl, up $0.42/bbl on the day. Yesterday, the IMF revised upward its global economic growth outlook for 2018 and 2019 by 0.2% to 3.9% y-o-y apiece. US tax reform is expected to accelerate growth, while large oil consumers such as Germany, Italy, the Netherlands, Japan and the Middle East as a whole also saw upward revisions. This is a positive for the oil market, especially following the decision of the IEA (whose forecasts are considered the most watched in the market) to keep its relatively downbeat y-o-y global demand growth estimate for 2018 at 1.26 mln bpd.
This morning, Brent is trading higher at just below $69.5/bbl, supported by investors' pricing in a weekly decline in US inventories. The latest API report is due overnight at 00:30 Moscow time. Last week, the EIA reported a bullish 6.86 mln bbl decrease in crude stocks (to 412.6 mln bbl), compared with the API's estimate of a 5.1 mln bbl drop (to 411.5 mln bbl). We expect a slight crude draw or even a small build, which would defy the expectations and be bearish (the median estimate given to Bloomberg suggests a 2.2 mln bbl decrease). We think the continuing build in gasoline stocks (the Bloomberg median estimate suggests a 2.1 mln bbl increase) and strong weekly growth in US crude production will also have a bearish effect on prices through the releases. Today, we expect Brent to trade mostly flat before easing from recent highs to closer to $69/bbl later in the day and then breaking through that level overnight.
CFTC data continues to point to a strong medium-term price correction. The latest weekly data showed that hedge funds' ratio of long to short positions was still rising and had hit 10.5 to 1, exceeding last year's high of 10.3 to 1, which led to Brent's falling by around $12/bbl to as low as $45/bbl. With the ratio this high, many hedge funds may start looking to take profit on their long positions, but current news flow has not given them a reason to do so yet.
> Gold stable amid end to US government shutdown and BoJ meeting. Gold was trading at $1,330-1,335/oz for most of yesterday and broke above this corridor early today to reach $1,338/oz, only to start trading with a negative bias since then. This effective sideways motion is being driven by two opposing factors currently at play. One of them is yesterday's passage by the US Congress of a funding bill to end the government shutdown. The shutdown lasted for three days and had only a slightly negative effect on the dollar. Democrats approved the short-term funding bill in exchange for promises that the issue of young illegal immigrants would be debated later, so the next milestone is February 8, when Congress will revisit budget and immigration policy issues. The other factor is supportive for gold: the BoJ meeting. Despite leaving monetary policy unchanged, the bank moderated its view on inflation expectations and now expects them to be flat rather than weak. This move hints at policy adjustments in the future, and the news supported the yen and gold, in turn pressuring the dollar. Today is rather quiet data-wise, so investor attention will turn to Thursday's ECB meeting. We expect gold to continue trading around the $1,335/oz level for most of the day.